Fixed Income Q4 2023

Following a difficult year in 2022, the bond market rebounded in 2023. As the year progressed, the Fed finally paused its aggressive rate hiking campaign and appears set to ease in the year ahead.  Long-term interest rates eased along with inflation, with the 10-year Treasury note falling from a peak of 5.0% last year to 3.8% in December. The growing fiscal deficit poses a challenge, as it will need to be funded with increased issuance of government bonds in the years ahead. Corporate borrowers will also need to refinance debt at borrowing costs that remain elevated. The Fed could provide surprises to the fixed income markets if they fail to cut rates as much as the market is currently forecasting. Despite these factors, we are finally seeing attractive real returns (i.e. adjusted for inflation) on fixed income (generally above 5%) without having to assume much duration risk.  For this reason, our investments have been generally focused on the short and intermediate maturity spectrum, and our cash allocations are higher than they have been in recent years.  While cash is still the best investment for short-term needs, we advise “locking in” higher yields by owning a mix of short-term bonds or bond ETFs. Corporate bonds still look attractive over the intermediate term, although credit spreads (i.e. the additional yield for assuming credit risk) for both high grade and speculative (high yield) bonds are relatively tight. High quality municipal bonds are also an attractive investment option for taxable investors, given fiscal conditions at the state and local levels. In summary, we expect favorable conditions in the bond market to continue with reasonable yields, stable credit, and the potential for some price improvements assuming interest rates fall in the year ahead.

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Economic & Market Commentary

Fixed Income Q2 2024

As expected, the Federal Open Market Committee (FOMC) voted to leave short -term policy rates unchanged at 5.50% at its June meeting. The Fed acknowledged “modest further progress” on inflation but is not quite ready to cut rates. We expect the Fed to keep interest rates at current levels for most of this year. For investors, that means cash yields will remain elevated. But there is also a risk to holding too much cash
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Economic & Market Commentary

Equities Q2 2024

Strong stock market performance continued through the second quarter, but at a more moderate pace and with fewer positive contributors when compared to the first quarter. Three months ago, we highlighted strong economic growth, falling inflation, and hopes of near-term Fed rate cuts as the three key positive dynamics sending stocks higher in 2024. Today, that list has narrowed to two. Economic growth remains strong and inflation is still moving in the right direction.
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